iiNet buys Internode for $105 million as telco consolidation continues ahead of NBN

iiNet has purchased Internode in a $105 million deal as consolidation continues among the nation’s biggest internet service providers ahead of the construction of the National Broadband Network.

iiNet announced it will acquire Internode’s 260,000 active subscribers, which includes 190,000 broadband subscribers and expected revenue of approximately $180 million in 2011-12.

The move comes just weeks after iiNet purchased Canberra-based ISP TransACT and suggestions that TPG was also considering making a move for iiNet itself. It also comes after iiNet said it would continue searching for strategic acquisitions.

In a statement, iiNet managing director Michael Malone said the company is an attractive acquisition, “consistent with our strategy of building scale in anticipation of the NBN market”.

“Internode’s experienced management team and excellent customer satisfaction record will allow iiNet to efficiently grow its presence in the South Australian and Eastern State markets.”

The deal will be paid by providing Internode managing director Simon Hackett with 12 million iiNet shares – currently worth around $33 million and representing 7.5% of iiNet’s fully diluted capital. This will be paid in cash net of Internode’s existing debt, from cash on hand and as an extension of iiNet’s current debt facilities.

Simon Hackett, who founded Internode in 1991 and remains its largest shareholder, said the deal will see “the best teams in the business” combine forces.

“We have highly compatible business approaches, unrivalled excellence in innovation around networks, technology and content, and we gain the obvious benefits of substantially increased scale.”

“The transaction will cement a strong and sustainable future for Internode, our staff, and our customers nationally.”

The combination of the two companies will make iiNet the second largest provider of DSL services, and third-largest provider of fixed-line broadband behind Optus and Telstra.

Hackett said given the two companies usually show up highly on customer satisfaction surveys, both strategies will gel well. However, Internode, like other iiNet acquisitions, will continue to serve as a separate business unit, retain its brand and remain under Hackett’s leadership.

Part of the attraction to the deal, iiNet said, was Internode’s strength in South Australia. But both Malone and Hackett said the deal had been tossed around for 10 years, until the NBN started to shake up the market.

Hackett commented yesterday the NBN era is “all about scale”, noting that Internode would have been one of the smaller players in the market.

Telecommunications experts believe more acquisitions will occur as businesses plan for the NBN, when customer scale, not infrastructure capabilities, will determine a company’s strength